When you overspend your budget by more than $1 billion, heads will roll and tough choices will have to be made. That's what has happened with Madison Square Garden's (MSGE) massive Sphere project on the Las Vegas Strip.
Sphere, a unique take on a performance venue that reimagines what a concert hall could be, was supposed to open in 2021 at a cost of $1.2 billion. Now, roughly two years later, the venue remains under construction and its cost has ballooned by over $1 billion.
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The Sphere, which sits in the parking lot at The Venetian right on the Strip, has been a disaster pretty much from day one. Early cost issues forced layoffs at the parent company and earlier this year MSG CEO (and part-time dad rock band member) James Dolan fired MSG Sphere President Lucas Watson and Senior Manager of Business Operations Jenna Wolfenson.
Watson, who joined the project in March 2022, was supposed to oversee all business operations related to the project. That obviously did not go well and MSG has been exploring a variety of ways to raise funds to keep the project going.
Now, the company has an answer to at least some of its financial woes. And, while Rangers' and Knicks' fans will be sad to learn that Dolan isn't selling the teams, Las Vegas club lovers might be happy at what the company has sold.
MSG Sells Tao Group
Ideally, Sphere was supposed to complement MSG's other Las Vegas Strip holdings, which include a series of high-end nightclubs, day clubs, and restaurants that mostly operate inside Las Vegas Strip resorts. Tao Group includes the company's namesake day clubs as well as a variety of nightclubs under the Hakkasan, Marquee Nightclub, and Omnia Nightclub names. It also operates the Wet Republic Ultra Pool.
In theory, MSG could have marketed pre and after-party events at various Tao properties along with Sphere tickets. It could have bundled deals with its restaurants and created fairly immersive experiences.
Instead, it has sold its 66.9% majority interest in Tao Group Hospitality to Mohari Hospitality, a global investment company focused on the luxury lifestyle and hospitality sectors, in a transaction that values Tao Group Hospitality at $550 million.
That deal, which is expected to close in May, will provide MSG with roughly $300 million in cash.
Sphere, which will open with a U2 residency later this year, is supposed to provide an alternative to the concert venues operated by Caesars Entertainment (CZR), MSG Resorts International (MGM), Resorts World Las Vegas, and Wynn Resorts (WYNN) among other Strip players.
MSG Isn't Fully Losing TAO
While MSG is selling its interest in Tao Group, it will be entering a deal with the new owners.
"The closing of the transaction is not conditioned on the receipt of financing. Effective as of the closing of the sale, the company will enter into multi-year agreements with Tao Group Hospitality for ongoing consulting, marketing, and support services at Madison Square Garden and Sphere in Las Vegas" the company shared in a press release.
That could lead to some of the deals mentioned above or at least some cooperation and joint marketing between the new and old honors of the unique brand.
Tao's founders, Noah Tepperberg, Jason Strauss, Marc Packer, and Rich Wolfwill retain their stake in the business, according to Casino.org.
“Over the last 20 years, we have been laser-focused on building premium guest experiences and a company with a global influence in all areas of hospitality, entertainment and pop culture,” Tepperberg said in a statement. “Mohari’s shared vision, coupled with the strength of its portfolio and leadership, make it an ideal partner as we look at the next chapter for Tao Group.”
